Jens Weidmann, the president of Germany’s central bank, said recently that while Greece in the process of implementing a number of policy changes, its current course of action has already shown signs of “redressment.”
“In public finances, a primary surplus is in sight and the current account deficit has been significantly reduced,” Weidmann said in a recent interview with Greek daily newspaper Kathimerini. “These first successes should be taken as an encouragement to stay the course in economic and fiscal policies given that not all of the agreed adjustment measures have been implemented yet.”
Weidmann estimated that external demand would bolster economic growth in the struggling country.
“The structural reforms already enacted and those to which the country is still committed to implement under the adjustment programmes will support this process, as will a continuation of the wage and price moderation observed in recent years,” Weidmann said. “Innovation and a higher degree of integration within international value chains will, more than before, be needed for growth. In this context, attracting foreign investment to modernize and increase supply capacities is crucial.”
Weidmann also touched on monetary policy and his recent vote against the European Central Bank’s interest rate reduction.
“Monetary policy decisions have to be geared to the outlook for inflation, because it is only future inflation that we can influence,” Weidmann said. “Notwithstanding our expectations that the inflation rate in the euro area will remain low for a protracted period, the risk of deflation is also very low. Longer-term inflation expectations continue to be well-anchored at a level consistent with our definition of price stability. But we should bear in mind that extremely low interest rates for a longer period of time are associated with risks and side effects.”